LETTER | Steps to reduce electricity tariff without subsidies

LETTER | The federal government retained the existing electricity tariffs with a 2 sen/kWh rebate for residential customers and a surcharge of 3.7 sen/kWh for non-residential customers.

The government used the rising cost of imported coal to justify the high surcharge on non-residential customers.

Malaysia utilises “Incentive-Based Regulation” and “Imbalance Cost Pass Transfer” (IBR-ICPT) methodology to determine electricity tariff.

The base cost to produce one unit of electricity is 39.45 sen/kWh. Surcharge and rebate are imposed based on the increase and decrease of fuel prices respectively.

Analysis at the macro-level on the IBR-ICPT methodology exhibits no potential to reduce electricity tariffs. However, the micro-level analysis of IBR-ICPT reveals plenty of opportunities and solutions to reduce the electricity tariff.

Monetise Hot Wastewater 

According to a report from Suruhanjaya Tenaga, the average thermal efficiency for coal and fossil-gas powerplants ranges from 28.75 percent to 43.42 percent.

Thermal efficiency is the amount of dispatchable electricity generated by a thermal powerplant per unit of fuel. The rest of thr energy is lost as hot wastewater which is dumped into the sea.

The hot wastewater is categorised as high temperature but mid pressure. The hot wastewater does not have sufficient pressure to spin an electricity turbine but has sufficient temperature for certain industrial processes. Certain domestic industries require heat energy for their manufacturing process.

The hot wastewater from powerplant can be monetized by piping and selling it to these industries. The cost of fuel can be proportionally shared between electricity and hot wastewater. Subsequently, the fuel cost component within the electricity tariff can be reduced.

Shut Down Excessive IPPs

Powerplants receive two kinds of payment; energy payment and capacity payment. Energy payment made to operational powerplant for generating electricity. Meanwhile, capacity payment is paid for the powerplant to remain on standby.

For the year 2021, the forecasted capacity payment to be made by TNB to non-TNB independent power producers (IPPs) will be around RM200 million.

According to a report by Suruhanjaya Tenaga, the reserve margin for Semenanjung in the year 2021 was about 50 percent.

Reserve margin is the measurement of reserve powerplants based on the all-time maximum electricity demand. Reserve powerplant is necessary as a backup when operational powerplant undergoes maintenance or repairs.

This reserve margin is calculated because the all-time maximum demand anomaly of 18,808MW that occurred on March 10, 2020, at 4.30pm. Throughout the rest of the year, daily peak demand hovers around 15,000 MW – 17,000MW.

Thus, the daily reserve margin varies between 50 percent – 75 percent throughout the year.

Semenanjung breach the 18,000MW mark of less than 14 days per annum scattered within the month of March and October during the hot season as air conditioners works harder to cool work and home.

This peak demand anomaly will go down with rising rooftop solar installation. Higher rooftop solar output during the hot season will curtail electricity demand. By the year 2023, a rooftop solar installation can chip off up to 1,300MW off daily peak demand.

Peninsular Malaysia should limit the number of powerplants to 20,000MW to shut down 6,000MW of excess fossil fuel powerplants. This will translate to a daily reserve margin between 10 percent-25 percent throughout the year saving hundreds of millions Ringgit in future capacity payments.

LSS a costly mistake 

Effective Jan 1, 2019, Peninsular Malaysia adopted “true net energy metering” for rooftop solar to replace the displaced cost.

This allowed excess electricity generated by solar PV to be exported back to the grid on a “one-on-one” offset basis. This policy change increased rooftop solar adoption tremendously amongst industries and commercial sectors.

TNB grid cannot accept solar penetration of more than 27 percent of its daily peak demand without a smart grid. The government gave out 1,313.94MW of large-scale solar (LSS) quota under LSS 3 and LSS 4.

Electricity generated by LSS built on agricultural land in rural areas needs to be transmit through TNB grid to high consumption regions.

The transmission of electricity increases the wear and tear of TNB electricity grid demanding higher operational cost (opex) and capital cost (capex). Between 2018 and 2021, TNB spent about RM21.5 billion in capital expenditure on the electricity grid for non-renewable energy-based transitions such as capacity upgrades.

Meanwhile, electricity from rooftop solar is consumed first by the premise itself before any surplus is exported into the grid. Thus, rooftop solar reduces the amount of electricity carried by grid. Rooftop solar will bring down capex and opex for TNB’s grid creating room for electricity tariffs reduction.

The LSS 3 and 4 was unnecessary and costly after rooftop solar boom. Covid-19 had derailed the financial closure and construction of LSS3 and LSS4. Thus, there is a window for the government to review and reallocate solar quota from large scale quotes to existing rooftop solar.

Off Peak Rebate 

The government should couple Time of Use (TOU) Rebate with the existing progressive tariffs for residential customers. TOU rebates can provide residential with rebates of 20 percent for electricity usage during off-peak period such as at nights and weekends. The TOU tariff scheme for residential was slated for Semenanjung-wide adoption in Q1’2020 but there is no news on its execution till date.

Electricity generation and transmission during peak period is more expensive compared to off-peak period. The TOU rebate prevents residential customers from paying the more expensive pro-rated cost. The TOU rebate can shift planned usage such as washing machines, dishwashers, handphone charging, ironing and vacuum machines from peak period to off-peak period.

These changes in the electricity consumption pattern are known as positive load-shifting.

Load shifting reduces the burden and bottleneck on the electricity grid during peak periods.

Positive load shifting leads to a longer lifespan of the electricity grid bringing operational and capital costs for TNB. Load shifting also reduces daily peak demand further reducing the number of expensive standby powerplants.

Moving Forward

Elected politicians and policymakers should not concede that the only direction prices of goods and services can move is upwards. Lower electricity tariffs lead to cheaper goods and service which will increase purchasing power and international exports. The federal government can bring electricity prices by monetising hot wastewater from powerplants, shutting down excessive powerplants, reallocating large scale solar as rooftop solar and introduce time of usage tariffs for residentials customers.

SHARAN RAJ is a human rights activist, environmentalist, and infrastructure policy analyst.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.